Fed rate in focus: What investors are watching today

Key highlights

• The Federal Reserve is unlikely to cut rates this week despite Trump’s pressure.

• The central bankers are cautious, waiting to observe how tariffs impact the economy before considering rate cuts.

• The central bankers are cautious, waiting to observe how tariffs impact the economy before considering rate cuts.

• Investors will be looking for clues from Jerome Powell's remarks on Wednesday for any indication that the Fed is nearing an interest rate cut.

• Markets remain cautious following two days of trade talks between the US and China, which ended without any significant breakthrough.

Fed rate decision process

• Powell chairs the Fed’s eight annual meetings; the other 11 voting members share voting power equally.

• Recent meetings have seen lively debates, but decisions on interest rates have been unanimous so far this year.

• The Fed is expected to hold rates steady again this week; two voters have signaled support for cuts, see the following chart [by Barron’s].

• The President nominates the Chair and six governors, who serve 14-year terms.

• Five regional reserve-bank presidents, hired by local business leaders, also hold voting seats.

Additional key economic data this week

• The Bureau of Economic Analysis is set to publish its initial second-quarter GDP estimate on Wednesday, July 30, at 8:30 a.m. Eastern Time.

• The BEA will publish its June data for the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, on Thursday, July 31, at 8:30 a.m. Eastern Time.

• The Bureau of Labor Statistics will release its July Employment Situation report on Friday, Aug. 1, at 8:30 a.m. Eastern time.

US interest rate probabilities

• US IR probabilities show about 96.90% and 34.6% no rate change in July and September, respectively.

• The market is predicting 63.4% and 49.2% probability of a rate cut in September or October.

Technical Analysis Perspective

US interest rate:

• Since 1972, the key levels for US interest rates have ranged between 5.25% and 4.65%.

• A rate above 5.25% prompted additional hikes, reaching levels between 6.00% and 6.50%.

• A key takeaway from the chart is that a sharp decline below 4.65%–4.50% in 1972 led to a significant drop in rates to 3.50%. Additionally, rates fell to 3% in 1992–1993. There was a sharp decline during the 2008 financial crisis, as well as in the 2020 COVID era.

US inflation is heading higher

• Higher US inflation is causing Fed members to adopt a “wait and see” approach.

• While higher debt and debt servicing costs remain a key focus for the US administration.

US indices vs rate cut

• US key indices dropped after the rate cut, contrary to investors' expectations that the market would move higher.